A time-series analysis of impact of FDI on economic development in India during post-reforms era (1991–2010)

This study examines the empirical association between Foreign Direct Investment (FDI) and Economic development (GDP) in India during 20-year-period (1991–2010) in the post-reforms era. With help of time-series regression model, where GDP has been regressed on FDI, after making both the non-stationary series (FDI and GDP) stationary through 2^nd differencing of Augmented Dickey-Fuller Test, we found that FDI had a negative impact, and that too marginally significant, on India's economic development during this period, which is contrary to the common belief. The negative impact has been substantiated by the fact that the growth rate of FDI inflow into the economy during this period was greater than the growth rate of GDP, which implies some unabsorbed capital remained in the economy, leading to inflationary pressure, which, in turn, caused a fall in the development of the real sector further, establishing a negative impact of FDI on economic development.